The petroleum complex had a somewhat quiet day as prices managed to find enough support to eke out a small gain on the day. Buying interest emanated from indications that a US stimulus package was making progress and could soon be implemented. Positive news out of China, as reports indicated that infection rates are slowing, added underlying support. The battle within OPEC+ trended for the worse, as the Saudi's continue to pressure Russia by lowering prices across Europe in an attempt to garner market share.
The moves by Saudi Arabia to lower prices down to as low as 25 dollars a barrel, were specifically targeted at Russian oil refiners in Europe, as the chances of an agreement between the two powers looks less and less likely every day. The horrendous timing of this production war when global demand is likely to contract substantially due to the COVID-19 spread has left the market wondering where to turn next. The news flow continues to suggest that things will likely get worse before they get better. If the battle between Saudi Arabia and Russia intensifies instead of coming to some sort of agreement on limiting production, we could see an extended period where prices flounder and continually test new lows, with the 20.00 area a psychological target if producers go to war.
The market pulled back as we expected mid-week, but recovered nicely today and continues to impress in the face of drastic price moves in other sectors. Yesterday's weekly storage report showed a 48 bcf draw, even worse than the 63 bcf estimates as prices probed down to the 1.75 level basis April after the release. The market found strength today on generally positive fundamentals, with weather indicating minor demand increases, production continuing to slow and LNG flows continuing to improve. The resilience we have seen indicates that a low may be in as belief that production, which is already showing signs of retraction, will suffer further in the wake of the crude oil situation. Prices likely remain somewhat range bound near term as the global issues run their course, with the 2.00 level offering solid resistance that could be a confirming sign of a bottom if violated. On the downside 1.75 should hold support.
Charts Courtesy of DTN Prophet X
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options ADMIS position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to. The authors of this piece currently maintain positions in the commodities mentioned within this report. Charts Courtesy of DTN Prophet X, EIA.
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